Posted tagged ‘the Fed’

1. Why, in the name of anything or anyone, didn’t Bear use it’s leverage? No one wanted them to file. They bent Jamie Dimon over (well, $10 per share isn’t bending him over, but paying five times the original price seems to be…) when they saw an opening. Everyone fought to ensure they didn’t have to file for bankruptcy, they must have known that it would be a disaster scenario that no one wanted to see played out… so why didn’t they use that more? “Make the J.C. Flowers bid work, or find a way to match it, otherwise I’ll be filing tomorrow. I’ll fax over the preliminary bankruptcy filing in five minutes.” Why not, right? If Bear’s position could deteriorate further then they can pass some form of legal test that they did what they were also looking out for creditors… Would the Fed and U.S. Treasury Secretary let them file and throw the world into disarray? If it looked like they caused, or stopped something that could have prevented, financial market Armageddon then they would be blamed. Seems like they balked on using this tactic, and I don’t understand why.

2. Oh, yeah… where is 2,000 DJIA points coming from?

At their gloomiest, regulators believed a bankruptcy filing could stoke global fears, threatening to topple other financial institutions and to send the Dow Jones Industrial Average into a 2,000-point nose dive.

Ugh. Please, stop guessing at stupid crap. If I said 500 would that be okay? Dimensioning the problem in terms of stock market movements is stupid. Hopefully this wasn’t their actual thought process. None of the agencies involved should be setting policy or taking action to prop up the stock markets. Jeeze…

3. I’ve been told by a whole bunch of reliable people that Ken Griffin, of Citadel fame, has a brother that heads up a large group at Bear Stearns (errr… did…). If Alan Schwartz can call a Morgan Stanley banker to get some Fed help why couldn’t Bear leverage Ken’s own brother, who would be very sympathetic to Bear, to figure out their “Citadel is shorting us” problem. Maybe they didn’t know? I could be missing something, I suppose…

4. We all know that Jamie Dimon manhandled Vikram Pandit on the call. I won’t re-hash it. Seems a bit… unnecessary, but it’s an interesting statement on each man’s demeanor.

5. Okay, this amazes me…

The next day, March 21, was Good Friday. J.P. Morgan turned up the heat, telling Mr. Cohen that if Bear Stearns didn’t make the desired concessions, the bank didn’t see how it could provide funding for the brokerage to trade the following Monday. In an ugly replay of the weekend before, Bear Stearns was imperiled again.

If J.P. Morgan wouldn’t guarantee Bear Stearns’s trades on Monday, the firm would most likely have to file for bankruptcy protection.

The article isn’t specific, but weren’t they required to provide financing? Or is this not the 28-day loan? the article isn’t specific here, but I can’t imagine that if J.P. Morgan was providing funding that it wasn’t somewhere in the terms they had agreed to at some point. Something is missing, and the missing facts probably makes the above passage “kosher” … however, since it’s not there, it just seems weird that J.P. Morgan was refusing monies to Bear when it had an interest in their survival, or, perhaps, even had an obligation to fund them.

6. I anticipate many people will chime in on this…

But this time around, Bear Stearns’s business was so weak, it wasn’t eligible for a Chapter 11 reorganization filing. Instead it faced a Chapter 7 liquidation, in which a court-appointed trustee would take over the firm, likely throwing out management and launching a sale of its assets to repay debts.

Many people great legal minds have opined on how Bear could only ever file for Chapter 7 … yet there is constantly mention of Chapter 11.

7. The last few sentences are just… hoaky. Why are those in there? I don’t know.

Well.. an interesting chain of events. An interesting take on it from the WSJ. Honestly, these are the kinds of things I think allows the WSJ to add the most value. Anyone can reshash the trading day, but this is where financial sources and real reporting shines. Good job WSJ!

The next installment in the WSJ’s look at Bear’s Collapse hit today. To be honest, nothing interesting stood out. Well, except the following..

1. Why was a Moodys downgrade of Bear Stearns–branded RMBS bonds cause the stock to drop? Something there makes no sense. These are insulated from the credit of Bear Stearns itself and the bonds are issued by a SPV. Seems off, or, perhaps, smacks of normal financial journalism that takes a fact and conflates it with the cause of the markets moving on that day.

2. I have to profess not knowing a ton about prime brokerage, but it seems that if, as it normal to do, Bear provided leverage on trades for prime broker clients, they need to borrow that money and as funds fled they would be able to require repayment of those loans. Also, since most funds are loathe to keep a lot of cash, as it hurts their performance, there shouldn’t be much cash fleeing with these funds.

4. They had their lawyer call the Fed. I guess I’m not sure why the chairman of Sullivan & Cromwell was charged with calling the Fed to talk about Bear Stearns situation. Seems very odd. And why was it that when Alan Schwartz called the Fed, he struck a less alarmist tone?

5. J.P. Morgan representatives arrived and were shocked at Bear’s books. We don’t know what that means (their liquidity position? the marks they had on their positions?) exactly. But here’s an odd thing: The JPM crew asked for the Fed–and they were already there! Setup in a conference room was the Fed, having already been there for several hours. Maybe it’s completely logical that the Fed would be there, even if they hadn’t been asked for help yet… Just seems to not jive with Alan Schwartz being cautiously optimistic earlier.’

Ok, like I warned earlier, no much to really talk about in this one…. Soon, part three! The conclusion awaits.